Superclusters

“The line that sits for me is you got to pick well, you got to coach well, and then you got to finance well – and the financing includes the exit.” - Jeffrey Rinvelt You know that homecoming feeling or the one you get when you catch up with friends at the 10-year reunion, THIS episode was that for me. We've had Renaissance Venture Capital's Jeffrey Rinvelt on since Superclusters' Season 1 as a post-season episode with Martin Tobias, and 3 seasons later we finally have him back. Jeff, who has every right to be a standalone episode. Let me elaborate. 1/ Who is the exit manager? Jeff may be the first person I've heard this from. The exit manager. Most VCs are geared to be great pickers. Even more so, if you've spent time at another large VC institution, but the difference between a fund manager and an investor is that the former also requires you to "exit well." It's not a "I'll figure it out when I get there." But how will you be disciplined enough to hedge against downside risk without capping too much of the upside. Does your fund strategy include when you'll remit the capital, not just how you'll commit? If not, you need to either hire an exit manager, or be that person yourself. Moreover, Jeff also answers the age-old question: Should VCs be public market investors? Should they hold past the initial liquidity window? 2/ $40M is the minimum viable fund of funds size for 2 people. When on 1% carry, that's $400K a year between 2 people, as well as back office expenses and support staff. The latter 2 often cost more than what thinks. Separate from the episode, a seasoned founding GP once told me to prepare between $150-200K on pure travel expenses per year to meet founders and LPs. Running a fund of funds is no less different. 3/ Renaissance measures GPs on net IRRs, as opposed to net TVPIs. FoF managers are measured on IRRs by their LPs. Jeff did caveat 2 things: a/ As an LP, if you are to measure by IRR, you must do your homework. Where are the gains coming from. Paper marks vs real marks. How much is realized? b/ Net IRRs take about 5-6 years to settle in. Anything before then is too volatile to measure. All this and more! Full episode and show notes in the comments P.S. Jeff may try to break your heart. Trust me, it'll make sense, but you'll have to listen till the end of the episode.

We are back! Season 4 of Superclusters kicks off with none other than the one of a kind Kelli Fontaine at Cendana Capital! From Kelli's origin story as a figure skater to her prowess as a data-driven founder, Kelli is who she is because of who she's been and what she's done in the past. This episode is extra special, not only because Kelli's been on my Mount Rushmore of LPs to invite to the pod since Season 1, but also that this episode hits hard. My 3 biggest takeaways are: 1/ Not all data are created equal. Some data are more equal than others (jk). That said, you can't always trust every piece of data you see online. Consider sampling and survivorship bias. Data in venture is heavily biased towards funds that last. Most funds don't. Funds that don't have no incentive to continue sharing their data. For the same reason, as an LP, it's important to start accumulating your own data sets and not trust public databases blindly. Cendana is lucky to have decades of data. But as the saying goes, the best time to plant a tree is 20 years ago; the second best time is now. 2/ Vintage benchmarking is useful after 7-8 years after the vintage, not before. “Everybody uses year benchmarking, but that’s not the appropriate way to measure. We have one fund manager that takes five years to commit the capital to do initial investments versus a manager that does it all in a year. You’re gonna look very, very different. Ten years from now, 15 years from now, then you can start benchmarking against each other from that vintage.” 3/ Neutral references are worse than negative references. Being forgettable is a sin in an industry where capital is a commodity. Neutral means no one has strong feelings about you. No strong feelings means you're not the first few VCs great founders pitch first. Meaning you get last pick. As a GP, you want to draft your fantasy team early, even if it means some founders will self select themselves from you. Full episode and show notes in comments below!

Succession planning isn't for every VC firm. Not every firm needs to last the test of time. “When you think about succession planning, you actually have to take a step back and think: Is that even going to be my approach? Do I need to think about succession planning or am I really talking about wind-down planning? And when I stop raising a subsequent fund.” – Lisa Cawley, As was the common theme in Superclusters' latest episode - part 3 of the trifecta on firm building and succession planning. Huge thanks to Jaclyn Freeman Hester, Ben Choi, and Lisa Cawley, CFA for sharing their unfiltered thoughts here! But what if your goal is to build a lasting, enduring firm? ?? You need to think about compensation. For younger GPs, if they cannot fulfill the GP commit for a large fund, offer no interest rate loans to younger GPs paid back through carry. If you want a new addition to the team to grow with the firm long-term, consider compensating the new team member with carry across even previous funds they were not a part of, instead of just the fund they've joined on to align incentives. That said, in the words of Ben, "If somebody is so good that they can raise their own fund, that’s exactly who you want in your partnership. You want your partnership of equals that decide to get together, not just are so grateful to have a chance to be here, but they’re not that great.” ?? You need to think about visibility. As Jaclyn mentioned, it’s important to raise people up internally and make sure LPs have enough time with the junior investors to really appreciate the talent that’s brought to the table and to build trust over time, so by the time they are the GPs, it is of no surprise. So much and more in the full episode down in the comments!

Part 2 is in! After all the love we got for Part 1 of this 3-part mini series on Superclusters last week with the amazing Lisa Cawley, CFA, Jaclyn Freeman Hester, and Ben Choi, we can finally share Part 2. First off, part 2 of 3 probably has the best library of soundbites out of the 3 episodes The common thread between Jaclyn, Lisa, and Ben in all of this is... Fund III planning starts at Fund I. ?? At Fund I, you determine your raison d'etre. Why should another VC fund exist? On the other hand, your Fund III planning must answer why should your VC fund continue to exist? And how does your brand and influence snowball on itself? Why would the best talent and founders choose you? Fund III's strategy doesn't have to be set in stone, but LPs must see that you're thinking about it today and agree directionally for them to be long term partners. On the more tactical side of things, Jaclyn really changed the way I thought about early hires at a VC firm. ?? If you don't want to do something at your firm, hire someone senior, not junior. Jaclyn talks about how there’s ROI in hiring senior people at your firm, as opposed to a junior person, if there’s an area of managing the firm (i.e. ops, finance) that you as the GP really don’t want to do. And that’s not just ROI on time saved, but also the creativity that comes with a senior, experienced hire that a junior person is unable to have. “Cleaning up messes can take up so much more time than doing it right in the first place.” More often junior people like the investing part just as much as you do, less of the operations work. And if you're not interested in doing ops per se, then you don't know how to set good KPIs for the junior person. You want to bring someone in who's just as excited about ops or finance or legal as you are about investing. And oftentimes, that's someone more senior. And if you are to hire someone junior, someone who's been battle-tested to know what world-class quality looks like. ?? "What are your other LPs doing?" is a horrible question You're outsourcing conviction. But even when you do, as Lisa explains, why a pension fund invests may have nothing to do with your motivation to invest. And why an endowment chooses to bow out may have nothing to do with whether the fund is good or not. To make this more concrete, a pension may have too much exposure to consumer, and they love the GP, but just can't invest. Or a family office doesn't do solo GPs, and won't invest until there's a partnership, but that has nothing to do with your set of priorities when underwriting a manager. And of course, I have to call out one of the best summaries of what LPs do. Shoutout to Ben for the one-liner. "LPs watch the movie, but don't read the book." Full episode in the comments

It's not often I get the brain trust of LPs together to talk about how they think about succession planning and firm-building in the best firms. And I love it 10x more when they share real, tactical examples of the best answers to their succession planning questions. The top 3 people I know because in our many conversations, have thought deeply and invested intentionally on the topic are Lisa Cawley, CFA, Ben Choi, and Jaclyn Freeman Hester. And it made me so frickin happy that all 3 said yes to this special Superclusters episode. That said, it was long! So as an experiment of creating shorter episodes, but to keep the essence of their insights, we're doing a mini 3-part series on the topic of succession planning at VC firms. Today is Part 1! What are the intangibles that create a firm with a legacy? ?? The culture keeper “The job and the role that goes most unseen by LPs and everybody outside of the firm is the role of the culture keeper.” -- Ben Choi It's the person who's usually quite senior who is an embodiment of the culture of the firm even when no one's looking. It's because of those small moments that define the character of a firm, and by nature of that, inspires others and attracts like-minded individuals to join. ?? It’s what you do in the dark that puts you in the light Most LPs don't see half the work GPs put in to creating the firm. But the ones that go down in the history books have the discipline to continue practices even if no one else knows about it. It's how people raise their junior team members and empower them. That the brand of the firm is just as much due to the senior talent as it is by the next generation. Spending time with GPs at their offices, observing how different team members interact is one way to see that. But that takes time. And it takes trust for the GPs and the team to lower their guardrails to be honest with you. And as Lisa Cawley, CFA cites from an infamous Michael Phelps commercial. "It's what you do in the dark that puts in the light." ?? Pre-emptively communicating changes in discipline If one could predict what the every nook and cranny in the world would look like 10-15 years from now, they're gods. For the rest of us mere mortals, things change. LPs, like Jaclyn Freeman Hester, get it. It's not nearly so bad for things to change but that things change, and subsequently you change but LPs don't know about it till post-mortem. There is a product in which LPs buy, and they'd like to be told beforehand if the product is to change during their subscription. All that and more in the full episode down in the comments ??

From growing up in terror torn Colombia to building robots for theme parks and special effects in movies to working as a commercial attache in Beijing to being a capital allocator in top venture funds, Felipe Valencia’s life is a Hollywood film in and of itself. Couldn't think of a better person to close out Season 3 of Superclusters. The one, the only Felipe from Veronorte! My favorite lessons (and yes, this is the longest episode we’ve put out to date, but there is so much meat to the bone that we chose to create a longer episode): 1/ Funds that have at least one fund in the top quartile are more likely to consistently outperform than funds that have never. If you're never seen excellence, you likely spend most of your time imagining what it would look like. 2/ 17-23% IRR net of fees across 12 years is the minimum a FoF must seek to warrant a fund of funds strategy in Latam. Veronorte achieves this by having an index-like approach to top funds across late-stage, established, and emerging funds. 3/ Bring presents. You’ll find that Felipe is extraordinarily strategic with his relationships and how we won access to some of the most recognizable VC brands today. Start by investing in great companies, then have the founders introduce you to their investors. And for every investor you meet, bring gifts. In Felipe’s case, it was world-class Colombian coffee. Not only does someone get a gift when they first interact with you, coffee becomes an easy topic to follow up on in a follow-up message after the initial meeting. Also huge shoutout to my buddy Enzo Cavalie for the intro! Full episode in the comments!

Most LPs bucket their investments in funds by verticals. For instance 20% in consumer, 20% in biotech, and so on. And in some ways, it's become the status quo. But Benjamin Ehrlich and First Momentum Capital doesn't. And as to why, Ben's answer is fascinating. At the end of the day, you're looking for non-correlated bets. The lowest hanging fruit happens to be drawing lines against verticals. But the more intellectually honest way is figuring out how much of deal flow overlaps AND the kinds of deals self-select themselves to be a certain fund's portfolio. In other words, what does a XXX deal look like? And how does that differ from a YYY deal? Fund A and B may both invest in consumer, but if Fund A only invests in solo founders, and the Fund B only invests in cofounders, then their portfolio will never overlap. All that and more on our latest Superclusters episode! And man, does Ben deliver! Of course, we talk about best sandwich spots and starting podcasts, but if you're at all curious about: a/ How to build trust quickly with GPs and team members b/ What does a No from Ben look like? c/ What is Ben's underwriting process for Fund I managers ... this is THE episode! Full episode in the comments!